About Microfinance

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The best place to donate money is somewhere that money will do something good - not just once, but over and over again.

Philanthropy with leverage is what we're after!

I have been an active donator all my life - I even donated blood until I had cancer, after which they wouldn't take my blood any more.

One thing which always haunted me was the sense that welfare hand-outs can create a cycle of dependence, rather than boosting individuals out of their difficult situations.

I tried to get around this by choosing charities like the Surf Lifesavers, Guide Dogs For The Blind, the Police Citizens' Youth Clubs (for their drug education and life skills programs), Greenpeace, and Amnesty International. I could see, in each case, that my donation would have a chance at saving a life, or in some other way making a lasting improvement to the world.

A few years ago, though, I discovered a whole new concept in charity - a concept which allows my one donation to be recycled over and over and over, helping hundreds and hundreds of people. What's more, it helps people in the classic "teach a man to fish" way, rather than just giving hand-outs. More accurately, actually, it helps people in the "enable a man to buy a fishing rod" way.

A New Concept To Combat Poverty

I am talking, of course, about microfinance, also known as microlending or microloans.

The way it works - your initial donation is loaned to an entrepreneur who is living in poverty.

Many of the world's poor are "working poor" - that is, they work up to 18 hours a day, but earn less than they need to provide the most basic food and shelter for their families.

A very small amount of money can enable these people to start their own businesses, or expand their existing businesses, and thereby increase their incomes.

The loans can also be used for educating children, or even adding rooms to a house to provide rental income.

But the real leverage from microloans comes from the fact that the increased income is also used to pay the loan back.

The same funds can then be loaned out to someone else, while the first loan recipient is still enjoying the benefits of their expanded income.

Since microloans have a repayment rate of over 95%, a single donation can permanently lift the incomes of 20 or more households.

Fast Company Names ACCION, A Microfinance Charity, One of Nation’s Top Social Entrepreneurs

Selected for the fifth consecutive year for its pioneering approaches to poverty alleviation, ACCION was awarded the 2008 Social Capitalist Award by Fast Company magazine and the Monitor Group, and was named one of the top 45 organizations "using business excellence to engineer social change."

Why Make So Many Loans To Women?

The majority of microfinance borrowers are women. For example, women receive 85% of the loans from Opportunity International, the UK's largest microfinance charity. The charity's website expains their reasoning.

Lending primarily to poor women ensures that their business profits are spent on education, health, housing, and nutrition, maximising transformational impact on families and communities. Financial independence earns the women respect in their communities as neighbours approach them for advice and assistance, generating a positive cycle of self-esteem. Access to financial services empowers and equips women to make their own choices and find a secure route out of poverty and social exclusion in a sustained and self-determined way.

Microfinance Success Stories

Vivian Adamh, in Ghana, was an experienced teacher, but had no way to start a school for the children in her native village. A seed loan of just 27 UK pounds was enough to enable her to start teaching her first six students.

By repreatedly repaying each loan and then taking out a new loan of greater value, Vivian has built from those humble beginnings to running a school of 360 students, catering for all ages from toddlers to teenagers.

The school building is still only partially completed, with plans for a second storey, but Vivian's energy and determination, and support from microfinance lender Opportunity International, will continue to develop this vital resource for future generations.

Judith Ngoma, of Malawi, used microfinance to enable her to sell fish and tomatoes. She can now afford to eat breakfast, and to pay for her youngest child to go to school.

Judith's microlender, Micro Loan Foundation, provided business training along with the loan. Judith now has a business plan.

"I want to continue working with MLF so that I can increase production in my business. I would like to be able to sell clothes as well as fish and tomatoes since they generate higher profit margins," she says.

Carmen Ore Torres was selling fish on the streets before she received her first microloan. "Nobody would lend money to me," she says, "Not even my sister."

Carmen lived with her husband and two children in a plastic shack with a sugar cane fibre roof. All four of them shared bedding on the stone floor, because the only furniture they owned was a single wooden bench. Their total income was US$80 per month.

Three years later, Carmen has a stall in a busy part of town, selling fruit, linen and clothes. The family now lives in a three-bedroom house with concrete walls and floor, and everyone sleeps in their own beds. They have chairs and a sofa, and even electricity!

Carmen is now making US$600 per month, and the old wooden bench lives in the back yard with the chickens.

Faustin Zihiga

Internet Microfinance

Internet commerce giant eBay acquired microfinance charity MicroPlace in June, 2006, for a small, undisclosed, sum when it was little more than Tracey Pettengill Turner and her business plan. PayPal, eBay's online payment service, will process the loans free of charge. "There are a billion people in the world who are self-employed, hard-working, and poor, and we are hoping to scale the industry to at least a billion," Turner says.

Microlending - Healing Wounds In Rwanda

Faustin Zihiga is Vice President of Marketing and Rural Operations for URWEGO Opportunity Microfinance Bank in Rwanda. He sees microfinance as the key to the reconstruction of his troubled homeland.

"I love the work that I do, and the people I work with," he says. "With microfinance, people begin to depend on their own abilities, rather than expecting other people and relief agencies to provide the solution to their problems."

He sees additional benefit for Rwanda in the common microfinance practice of forming groups of borrowers, who support one another in keeping to their repayment schedules.

"In our group-lending programme, survivors of the genocide mix in the same groups as suspects of the genocide. They begin to associate themselves by their group, not by their ethnic background ... the social change is even more visible than the economic change that microfinance brings about."

Jonathan Stratton of Scarborough, Maine, used microfinance to launch his FairTrade coffee business.

Microlending in the USA

Microfinance is not just for the third world. Microlender ACCION supports entrepreneurs in the USA as well as in less-developed nations.

Melvin Gibson earns his living performing hands-on science experiments for elementary school children. When he needed $2,500 to buy a new computer, the banks turned him down, and he turned to a microlender.

At 66 years old, Ninfa Cárdenas of San Antonio, Texas is going strong.

Over 10 years ago, Ninfa's husband of 40 years left her. Since everything had been in his name, Ninfa had no credit history of her own. She had a business running festival stalls, but organisers were starting to ask for payment in advance, and microfinance was her answer.

Callie and Gary Ford, of Santa Fe, New Mexico, renovated an old trailer and started Callie's Cajun Smokehouse - only to discover that the cost of electricity was consuming most of their profits. They used a microloan to buy a portable generator, and managed to stay in business.

Rene Rosas used a $5,000 loan to buy stock for his Peruvian import store in Boston, Mass.

The average loan size for a microloan in the US is just over $5,000, as opposed to an average loan of $700 or $800 in a developing nation, but the increases in income are equally large. For example, Oscar Delorier of Miami, Florida, was clearing about $100 per month from his landscaping business when he first applied for a microloan. Now he employs six people, owns hundreds of thousands of dollars' worth of machinery, and makes $15,000 per month.

Sometimes, a small amount of capital at the right time can perform miracles.

The Warm-Blooded Alternative To Microfinance

A similar ripple effect of empowerment is delivered by Heifer International, but in a rather more cute and furry manner.

The charity buys a heifer (a female calf) for a family in poverty. The heifer grows up and produces calves and milk for the family. The charity asks that the first-born female calf is given back to Heifer International, to start another family on the road back from poverty. This means that each donation to Heifer International provides a heifer for a family living in poverty - not just once, but each and every year for all time.

Criticisms of Microfinance

Microfinance has been criticised for several reasons. Some have suggested that because the loan amounts are small, and they are directed to individuals, microfinance will never deliver infrastructure improvements, such as wells, roads, and hospitals.

Others have pointed out that since the recipients are in such a state of poverty, they may direct their loan funds into food for the family, rather than investing them in a business, making the loan little different from charity - in fact, worse, because mainstream charities don't expect to be repaid.

Some have criticised microfinance organisations for setting interest rates to cover their costs, which can sometimes result in higher interest rates than those in the Western world, who borrow funds from banks and provide real estate as security, are used to seeing.

Microfinance Charities

Message On The Launch Of The International Year Of Microfinance - 2005

Microfinance has proved its value, in many countries, as a weapon against poverty and hunger. It really can change peoples' lives for the better -- especially the lives of those who need it most.

A small loan, a savings account, an affordable way to send a pay-cheque home, can make all the difference to a poor or low-income family. With access to microfinance, they can earn more, build up assets, and better protect themselves against unexpected set-backs and losses. They can move beyond day-to-day survival towards planning for the future. They can invest in better nutrition, housing, health, and education for their children. In short, they can break the vicious circle of poverty.

If we are to reach the Millennium Development Goals, that is exactly the kind of progress we need to make.

Let us be clear: microfinance is not charity. It is a way to extend the same rights and services to low-income households that are available to everyone else. It is recognition that poor people are the solution, not the problem. It is a way to build on their ideas, energy, and vision. It is a way to grow productive enterprises, and so allow communities to prosper.

Where businesses cannot develop, countries cannot flourish. Let us use this International Year of Microcredit to put millions of families on the path to prosperity.

Finding ways for kids to make money when they are too young to have a regular job can seem like a real challenge. But with a little thought and a dash of imagination, young entrepreneurs all over the world are coming up...

Comments 11 comments

Most of my giving goes directly to my church, and to the extensive worldwide mission work that happens within my denomination.

I still like to give over and above what goes to the church, though. Most of that is through campaigns through my workplace such as March of Dimes, Children's Miracle Network, United Way, etc.

The concept you discribe here is unique and intriguing. I'll have to look into that some more. Thanks for sharing.

lisatener 8 years ago from Rhode Island

Thanks, you actually confirmed that we're I'm giving is a good plan. I am taking out my credit card right now and clicking on Accion--it's about time for another donation-thanks for the nudge.

Inspirepub 8 years ago from Sydney, Australia Author

I really like this concept - I'm glad to know others fell the same way!

Marisa Wright 8 years ago from Sydney

Good Hub! I lived in Africa for three years and have never donated to the big overseas aid charities since - I saw 90% of aid money and goods being siphoned off to the rich through corruption. For instance, a donated tractor sitting unused in the chief's garden as a status symbol, when it could have done so much good on the tribe's farms.

The only money that did get through was donations from the Catholic church, but only because there was a small community of nuns and they kept strict control!

I now donate to microfinance charity because there is more visibility on where the money goes.

Inspirepub 8 years ago from Sydney, Australia Author

Yes, Marisa, the bigger projects can have more problems with corruption and waste. I like the microfinance model because it empowers individual entrepreneurs directly. Enlightened self-interest will make sure they put those funds to the best possible use.

I have recently started a project to raise funds for microfinance by writing a book - I'm hoping everyone will register as supporters (which costs nothing) because the more people we have registered the more money we can get from the publisher for the charity.

You can register at www.raisingentrepreneurs.org - please tell anyone else who is interested!

Yes i strongly agree here is a site i have been donating for free to help others. www.donatebyclicks.com It has many other sites included that offer the same donations of clicking on the sponsers just use the search bar to recover the charity you would like. All is appreciated!!

Angels with Faith Ministries Georgia 4 years ago

Angels with Faith Ministries 501c3 non-profit charity located in Winder,GA 30680 announces that our annual Christmas Angels Program will kickoff on November 1st to provide Christmas gifts,holiday food baskets & warm clothing to children in need &their families all over Georgia.You can adopt a family for Christmas & either meet & work with them personally or through us,either way it is tax deductible for every cent that you spend.You can also donate toys(new & lightly used),warm clothing,shoes,coats,baby needs,Food for holiday baskets,Bikes,gift cards,electronics,working computers of all kinds,or make monetary donations via paypal on our websites or by mail or in person.We have volunteers available to pickup donations in georgia. Each year we receive 100s of families in dire need of Christmas assistance from DFCS,Toys for Tots,Salvation Army,Operation Christmas Child,The miltary,Empty stocking,etc ,schools,Churches,businesses,caring neighbors & some who come to us themselves,once the bigger charities either stop taking applications in october or get full they start sending families to us.Since we receive no funding at all & rely strictly on the tax deductible donations of angels we truelly need your help this year. We do not turn anyone in true need who lives in Georgia & isn't receiving Christmas help from anywhere else(we do check) away because every child deserves to have a wonderful Christmas,food & warm clothing.We are a small group of volunteers working hard to make a difference in the lives of families in true need,crisis or after disasters & since we do not have any overhead costs & our volunteers do all of our promotional,website & other work we can give 100% of ALL donations directly to helping those in need.ALL donations are tax deductible our federal EIN number is 27-1972461.Our websites built & run by volunteers are angelswithfaithministries.beep.com & angelswithfaithministries.org Please be a Christmas Angel this year & adopt or sponsor a family or families in need in Georgia for Christmas or make a tax deductible donation to help us provdie Christmas to 100s of Georgia children email angelswithfaithministriesgeorgia@yahoo.com Phone Lori (director) 678-754-1541 Rev Michael Tuck 678-754-2337 or volunteer Avis at 678-887-1988

Angels with Faith Ministries 3 years ago

Angels with faith Ministries 501c3 non-profit charity in Georgia accepts donated Real Estate ,any kind,any condition & all donations are tax deductible for FULL fair market value for up to 5 years!We are a TRUELLY non-profit charity run by volunteers to make sure that 100% of ALL donations go directly to helping those in need,crisis,after disasters etc.Not a cent of donations ever goes to administrative fees,overhead costs,salaries etc the way a charity should run.Most big charities can only give 18% of all donations after tehy pay ourt overhead,Pr,salaries,rent on fancy storefronts,etc,we do all of our own website work,PR work,ads,& are all volunteers working form our home based charity/Church so that not a cent of the donations that people give to help people in need go to costs,we belive that people do not donate to charity to line someones pockets or to pay salaries etc,they donate to actually make a difference,to help those in true need & that is why almost 5 years ago we started this charity to make a TRUE difference.Donating Real estate of any kind is fast,easy & will TRUELLY make a difference, just fill out & have a Quit Claim Deed notarized either bring it to us here or mail it,we give you a tax deductible donation receipt & that is it ,you no longer have to worry we get teh property changed over to our non-profits name & help families in need either by giving the house directly to that family or by selling the property & using the money to house,feed,clothe & help many families,& thanks to a generous donation from a vacation company we give everyone who donates Real esate,Boats,Vehicles,Cars,Rvs etc a voucher for an up to 7 day cruise on Carnival or Royal Carribbean for 2 & a 3 day 2 night hotel stay for a family of 4 in 100s of loactions of your choice that includes 2 adult theme park tickets.Everyone wins,you get a tax deduction for up to 5 years,you help families who have been through some really bad times & you never have to worry about upkeep,taxes,etc on a House,land,inherited estate,farm etc ever again. Alos our Charity/Church is in DIRE need of donated property(with or without dwellings)for a permanant home for our Church/Charity so that we can place donated mobile homes & campers on it to temporarily house homeless families & military families who are homeless when they come home from overseas etc & also with hopefully a fishing pond so that we can build our permanant Youth Camp for disadvantaged & at risk teens & children, over the past 4 years our Youth Group has grown fast as well as our charity & we have outgrown our current small home that we currently rent & run our Charity & Church from,just this Christmas 2012 we were blessed to have helped over 1000 children but could have helped so many more if we had more room for storage & for handing out Christmas gifts,if you have vacant or unused,unneeded etc land,property,Farm,etc that you would be able to donated for our permanant location we would definately place a plaque in your honor on the front sign & you would be helping us expand & grow to help more families every year,we accept property in any condition & of any kind & since we are currently located in Northeast Georgia we would prefer to stay in teh Northeast Georgia area but are truelly open to all possibilities.Thank you & God Bless! visit our volunteer built & run websites at http://angelswithfaithministries.beep.com & also http://angelswithfaithministries.org Our Federal EIN number is 27-1972461

QuestionandAnswer 2 years ago from Kent, UK

Great hub, really enjoyed reading this. I once got a $50 Kiva loan as a birthday present and have since topped that up with another $50 of my own. I keep lending small amounts out to projects and really enjoy seeing the updates of how people are using that money. I've never had anything go wrong (as of yet) and I feel like I'm doing my bit for local communities by lending. All of the money made goes straight back into more loans and I'll continue doing that until it is no longer physically possible.